Wiley Accounting
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Discussion Topics for Today's Classroom

So much for stimulation by tax cuts

Description: According to the theory, the massive US tax cuts of last year were supposed to get the tech companies hiring lots of workers. But according to the Financial Times of London, five large American tech firms, including Apple and Alphabet, spent $115 billion on share buybacks. This could be setting up the companies for long-term problems as instead of investing for the future, they may be focused on short-term gains for investors and executives. Meanwhile, the taxpayers may have to dig deeper or suffer program cuts as the treasury suffers from revenue depletion to pay for the tax cuts.

1) What is your feeling towards the tech giants and other companies that seem to have been spending their tax savings on dividends and buying back shares?

2) Do you think tax cuts are a good way to stimulate the economy?

3) In Chapter 13 of Wiley’s Financial Accounting: Tools for Business Decision-Making, problem BE 13-11, page 739, poses the following question regarding Apple: “Why do you think the amount of dividends paid is greater than the amount of capital expenditures in 2014?” Given the information presented in this article and Chapter 13, what do you think the answer might be?